The recent outbreak of the deadly Coronavirus (COVID-19), which has already created havoc all around the globe, now poses a serious threat to the global economy. While there are measures being taken to ensure that it does not turn into a serious pandemic, the world is still affected by the virtual shutdown of China, one of the world’s largest economies. China’s shutdown not only endangers its own economy but also threatens businesses around the world that are dependent on China. Many big corporations are already seeing the effects of China’s shutdown and are expected to sink even deeper as long as China’s shutdown continues.
Owing to its strong business ecosystem as well as low taxes and duties, China is regarded as the World’s factory. This is because China manufactures products of many of the major companies around the globe. The reason why companies prefer to manufacture their products in China is that there is abundant low-wage manpower available. Also, China’s already established business network, along with low taxes has an added advantage. So, it isn’t a surprise that economies, both big and small are dependent on China for a number of businesses.
Impact on Australian Economy
One of the largely impacted economies by the coronavirus is Australia. China is one of Australia’s biggest trading partners. Also, it is a part of the supply chain for most of Australia’s consumer products. Australia’s mining industry, which employs over 2,00,000 people, is affected immensely by the sudden interruption caused by the virus outbreak. In addition, China is also one of the biggest consumers of Australia’s exports which include iron ore, coal, energy products, etc. All these factors have deteriorated the Australian economy so much that it is assumed that the economic impact of the coronavirus outbreak could be worse than the bushfire crisis that recently shook the entire nation.
Impact on Japan Economy
The coronavirus outbreak has also affected it’s Asian neighbor Japan, whose GDP has fallen for the first time in five quarters. China accounts for almost half of the exports and imports of Japan. Factory shutdowns and reduced demand are already taking a toll on the Japanese economy. Another Asian country, South Korea, has the largest number of reported cases outside of China. The fact that the number of reported cases has suddenly risen from 0 to over 5000 in just 2 weeks has instilled fear in the people. Factories are shutting down and consumption of products is declining quickly. For a country that’s hugely dependent on Global economy, this is not good news.
Coronavirus Effects (Industry wise)
One of the major industries affected by the coronavirus outbreak is the Airline industry. The International Air Transportation Association has claimed that Chinese airlines alone could face losses of about $12.8 bn in revenue. Whereas, the overall cost to the industry globally is expected to be around $29 bn. Many organizations are preferring video-conferencing over business travels. All of this has compelled airlines to cut down on the frequency of their international flights. Airlines are encouraging employees to go on unpaid leaves. Even in countries where the epidemic hasn’t claimed any lives or has claimed just a few lives, the number of Domestic flights are set to be decreased. This is because people are avoiding public gatherings and travel as much as possible.
Economists expect that China’s growth rate can slow up to 4.5% in the first quarter, sliding down from 6% in the previous quarter. If this does happen, it will China’s slowest growth since the financial crisis. Reports suggest that about 42% of China’s economy could be affected by the epidemic. Economists have also expected a drop in China’s GDP from 6% last year to 5.4% this year. And what makes this scenario even worse is that China’s share of global trade today is about 11%. This means China’s shutdown alone is impacting the world economy to a great extent today. And now that the virus has almost covered every part of the world, the global economy is set to sink even lower. If the virus becomes a global pandemic, the World GDP can drop as much as 1.3% compared to the current projection. This would mean a loss of about $1.1tn, which is huge.
Another industry that has been hit by the deadly virus is the tech industry. Major companies like Apple, Samsung, Microsoft, Tesla, and Google have shut down their offices in China. Some companies have even shut down their offices in the nearby Taiwan and Hong Kong. While many offices and factories in China are shut down, employees from other parts of the world are also asked to avoid travel. Companies that depend on China for a number of their hardware requirements such as computer chips, cellphone parts, etc are facing huge losses every day.
Effect on Travel Sector
The industry that is worst affected by the novel coronavirus is the travel industry. Traveled restrictions, cancelled flights and a widespread scare have hit the travel industry very hard. Business travel around the world is being avoided as much as possible, with meetings and conferences getting cancelled or postponed. For an industry responsible for over 319 million jobs with revenue of about $5.7 trillion, this is considered to be one of the worst crisis since the 9/11 terrorist attacks on United States.
All in all, the virus outbreak has already impacted the global economy to a great extent. And if the virus spreads even more, to different parts of the world, the possibility of a global recession becomes very high. With China at the heart of numerous complex supply chains, various industries around the world have halted their processes and are hoping for the conditions in China to improve quickly. Along with being at the heart of supply chains, China, with its huge population, is also responsible for the huge number of consumers for various industries. But now, with China facing a shutdown, industries with strong Chinese consumer base are also suffering. To sum it up, the containment of this deadly virus is the need of the hour. For if not contained, it would lead the world into a global recession and affect almost every sector in all the parts of the world.